Higher Education and the Economyhttp://blogs.forbes.com/ccap
[Please go to \'Settings\' to change your Tagline]Fri, 31 Jul 2015 13:01:00 +0000en-UShourly1http://wordpress.org/?v=3.9.2Higher Education Weeks in Review: July 2-31http://www.forbes.com/sites/ccap/2015/07/31/higher-education-weeks-in-review-july-2-31/
http://www.forbes.com/sites/ccap/2015/07/31/higher-education-weeks-in-review-july-2-31/#commentsFri, 31 Jul 2015 13:01:00 +0000http://blogs.forbes.com/ccap/?p=2085Heavy support for the Bennett hypothesis – the idea that increases in student financial aid lead colleges to increase tuition and other costs of attendance – was discovered by researchers at the New York Fed: “On average . . . each additional dollar in government financial aid translated to a tuition hike of about 65 cents.” And so Cato’s Neal McCluskey adds another title to his list of studies confirming Bennett’s intuition. For full text of the study, click here.

Wonder if U.S. Sen. Lamar Alexander winced when he saw the headline the Wall Street Journal editors gave his op-ed? “College Too Expensive? That’s a Myth.” Alexander mentions a study by Boston Consulting Group that put the cost of Vanderbilt University’s compliance with federal regulations at more than $11,000 per student! But behind the Chronicle’s paywall, Goldie Blumenstyk is skeptical.

Apparently later today the Departments of Justice and Education will announce a pilot program designed to resume Pell Grant funding to federal prisoners.

Twenty institutions account for a fifth of all graduate student loan debt, according to the Washington Post. Nota bene: I was unable to find the Center for American Progress report cited by the Post as its source.

Family income and choice of college major: This post offers some evidence that “Kids from lower-income families tend toward “useful” majors, such as computer science, math, and physics. Those whose parents make more money flock to history, English, and performing arts.”

No more SAT/ACT:George Washington U. will no longer require freshman applicants to provide standardized test scores. The number of schools that have taken this step might surprise you; click here.

“Barack Obama pushes for-profit colleges to the brink,” reported Politico just two days after CCAP President Richard Vedder blogged “The Obama Administration is out for the Blood of For-Profit Schools.”

Subsequently the University of Phoenix’s parent company announced it is under investigation by the Federal Trade Commission, apparently with regard to its marketing practices. Its CEO laid out additional internal reforms the company will pursue, explaining that “We want our reputation back . . .”

What zero tolerance for microaggression looks like at the University of California is described by Heather MacDonald in the City Journal.

College as echo chamber:George Leef asks the question, “Critical Thinking, or the ‘Expectation of Confirmation’”?

Can the Republic Survive Higher Education’s Influence? is the question addressed by this online symposium from the Pope Center.

Two more from big think corner: The Washington Post’s Jeffrey Selingo asks, “How many colleges and universities do we really need?” New America’s Kevin Carey explains “The fundamental way that universities are an illusion.”

The University of Akron is typical of America’s urban universities that grew rapidly in the 20th century. Great ambitions have been unrealized and mediocrity pervades. The enrollment on the main campus last fall was about two thousand less than in happier times more than a generation ago, 1985. A president with an Edifice Complex, Luis Proenza, left the campus deep in debt. A new president, Scott Scarborough, is struggling to right the ship, trying to redefine the school as “Ohio’s polytechnic university,” whatever that means, and practically giving away some general education online courses, much to the annoyance of nearby community colleges (a rare example of price competition in higher education which I applaud).

This month, the school announced another round of big budget cuts. Over 200 non-instructional positions are being eliminated, most of them by layoffs. The baseball team and the university press are being axed, and the university’s performing arts center appears to be on life support. One huge expense that was spared cuts: football, which has the faculty in arms. Its new expensive football stadium has far more empty seats than full ones on most game weekends.

Mediocrity Breeds Contempt

The situation at Akron can be replicated at universities all over the country, albeit perhaps not quite on the same level. In the mid-20th century, schools similar to Akron were created or given huge boosts by state governments trying to bring higher education to the masses. Many of these schools have decayed in recent decades along with the aging cities in which they reside, hurt by the major slowdown in American economic growth that ultimately is explained by the transport of the European progressive welfare state to U.S. shores.

Returning to Ohio, Forbes recently released its rankings of 650 colleges. Among the schools in the bottom decile of those rankings (those ranked 586 to 650), there were seven mostly late blooming Ohio state universities – Kent State, Akron, Bowling Green, the University of Toledo, Cleveland State University, Wright State University, and Youngstown State University – a majority of the state’s 13 four year institutions. The Forbes rankings (which the Center for College Affordability and Productivity produced) are very student centered, looking at student satisfaction, student debt levels, post-graduate success, et cetera. Ohio led the nation in the number of marginally ranked schools. In an era when enrollments are in decline, the marginal schools – both public and private – have their very survival at stake, so cuts like those at Akron will become more commonplace.

Wright State’s Unknown Scandal

Ranked 645th of 650 on the Forbes list is Wright State University, a school in Dayton founded in the 1960s. The president and the chair of the Board of Trustees recently held a press conference to announce: nothing. The school has put on paid administrative leave several very senior administrators, including the school’s provost (!!) and general counsel. Why? Who knows? At the press conference the top officials said, in effect, “some day we will tell you.” So much for transparency.

Housing Price Scams at Cincinnati and Miami??

Two young acquaintances have revealed to me that the University of Cincinnati has a shortage of university owned housing, so it rents apartments in privately owned housing complexes. The interesting thing, however, is that it apparently charges university housing rates that are higher than residents of the same apartment complexes pay if they contract for space independently. Rumors are the same thing is happening this fall at highly regarded Miami University. The schools will argue, no doubt, they provide extra services, such as some supervision from resident assistants, but the students I talked to would have preferred lower prices. One of the many mini-scandals of higher education are the extremely high rates charged for housing by university monopoly providers. If I were czar, I would consider forbidding universities from tying the purchase of their educational services to the provision of housing and food services as well.

The Race Card at Ohio University

At the state’s oldest school, Ohio University, a longish soap opera is playing over the president’s house. The near retirement age president Roderick McDavis apparently doesn’t like living near – horror of horrors – students, and has convinced the governing board that a new nicer house far away from the collegiate riffraff is needed. When the faculty and others objected strongly, a big donor proposed in an email that the school use the race card – accusing the faculty of racism (McDavis is African-American). He has since apologized. The University, revealingly, never really rebuked the donor for his despicable idea – money trumps principle.

Murder in Cincinnati

The nation is agog at the senseless killing of an individual stopped for not having a license plate by a member of the University of Cincinnati police department. Putting that tragic incident aside, one might ask: should universities have their own police department? Cincinnati’s apparently has over 70 police officers. The county prosecutor, a UC graduate himself, himself questions the propriety of the campus department, which must be costing someone (students and taxpayers) millions annually.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

]]>http://www.forbes.com/sites/ccap/2015/07/30/collegiate-shenanigans-in-ohio/feed/0The Bumbling Bureaucrats at Berkeleyhttp://www.forbes.com/sites/ccap/2015/07/29/the-bumbling-bureaucrats-at-berkeley/
http://www.forbes.com/sites/ccap/2015/07/29/the-bumbling-bureaucrats-at-berkeley/#commentsWed, 29 Jul 2015 14:21:00 +0000http://blogs.forbes.com/ccap/?p=2074By most accounts, the University of California is America’s greatest public university. In just released rankings, Forbes ranks its flagship campus at Berkeley as the best public university in America (excluding the military academies), and the UCLA campus is ranked fifth (full disclosure: the Center for College Affordability and Productivity, which I direct, did the rankings for Forbes). Since California is the nation’s most populous state, this should not be surprising, but it is a great source of pride for denizens of the Golden State.

Yet academic greatness does not necessarily mean sound management or efficient provision of services. Let me mention just three reasons why I am less enthusiastic about the management of the UC system than say that of lower ranked Purdue University. First, is the oft-mentioned enormity of the UC bureaucracy. The last time I checked, there were about 2,000 employees in the central office – individuals mostly far removed from the instruction or research going on at the 10 major individual campuses. What if the school decentralized in administration, doing away with 1,800 employees and leaving just 200 in the central office? I suspect it could save close to $200 million annually, or perhaps $800 for every student attending the university. The university is organized on the old Soviet model – massive central planning and decision-making. What is best for the smaller, new campus at Merced may not be optimal for the older established campuses at Berkeley and Los Angeles.

Second, recently the head of the university, and old liberal pol turned university administrator, Janet Napolitano, declaring that henceforth all university employees were going to be paid $15 or more per hour, saying that it was “the right thing to do”. Her non-religious fatwa meant that some student employees would be getting 67 percent raises. How wonderful! How nice! How humane! But why stop there – why not go to $25 or $50 an hour?

My take on this is rather different. I think it is a morally dubious and economically unjustified act of cruelty and inefficiency. It is cruel because it will throw some workers out of work and/or raise the cost of college to some individuals of modest means. It is morally questionable because it tries to claim moral superiority for an act that produces winners and losers in a totally arbitrary fashion. And, to me at least, it is a totally inappropriate attempt to interject a university into a current political debate over the minimum wage.

The literature on the minimum wage is long and for the most part relatively non-controversial. A large portion of low wage earners impacted by minimum wages are second or third earners in relatively affluent middle class families – not the poor. High minimum wages force employers to lay off workers or reduce their hours. In the case of UC, additional funds are needed to pay the higher labor costs, coming either from tuition hikes or more taxpayer subsidies, or the university will have to reduce employment to stay within budgets. The school constantly complains if the legislature does not provide more funds – but then engages in extravagant behavior that private businesses cannot afford to undertake. The probability that recent high wage enactments in Los Angeles and other California towns will cause higher unemployment is about the same as that the sun will rise in the east tomorrow morning.

That brings me to the third sign of UC’s mismanagement, the announcement that it will require letters of recommendation of applicants. That, of course, is something done by most schools, but the California system has thrived without requiring them. Why now? The only answer that makes sense to me (and some other commentators) is that the school is stymied by a state law forbidding discrimination in admission based on race, and that the university will claim that letters allow for a more “holistic” admissions process that takes account the character and leadership qualities of a student in a fashion better than grade transcripts or a student resume can indicate. In short, it provides a legal justification for evading California law.

For individuals who evaluate a university’s stature in part based on the skin coloration of its inhabitants (in earlier more plain spoken days, we called those persons “racists”), the University of California admits far too many Asians, but not enough blacks and Hispanics. Never mind the fact that the voters in California overwhelmingly have forbidden race-based admissions policies. The public be damned. Pay your taxes and shut up.

California’s failed public policies are endangering the state’s future. Taxes are excessive, environmental rules oppressive. There is massive out-migration amongst California natives and unemployment is well above the national average. All of this bodes ill for the University of California. But the institution itself adds to its vulnerability by actions such as the three discussed above.

Richard Vedder directs the Center of College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

]]>http://www.forbes.com/sites/ccap/2015/07/29/the-bumbling-bureaucrats-at-berkeley/feed/0Confessions Of A College Rankings Guruhttp://www.forbes.com/sites/ccap/2015/07/29/confessions-of-a-college-rankings-guru/
http://www.forbes.com/sites/ccap/2015/07/29/confessions-of-a-college-rankings-guru/#commentsWed, 29 Jul 2015 13:49:00 +0000http://blogs.forbes.com/ccap/?p=2066I spend several months each year helping FORBES compile its annual rankings of colleges and universities. Why do I do it? It does not increase my income (I get paid by the Center for College Affordability and Productivity whether we do the rankings or not) or personal name recognition.

I do it because rankings are important to providing very useful information at a low or even zero cost to consumers. The two biggest financial outlays most families make are to purchase a home and to pay for their children’s college expenses. Take a family that sends two kids to colleges, one at a private school and the second at a state university. If it pays the stated tuition and room and board fees (the sticker price), it likely will spend somewhere around $300,000 –which in much of the U.S. will buy you a nice house.

Before you buy a house, however, you typically have it inspected for defects, and when you spend a much smaller sum buying a car, you can read what Consumer Reports or J.D. Powers has to say. But how do you assess the quality of colleges? The colleges themselves are in the knowledge business, but provide little but often biased propaganda about their virtues and nothing about their defects. That is why magazine rankings such as those provided by Forbes and US News are so popular.

The FORBES rankings, for example, are very student-oriented, emphasizing three major factors and two others to a lesser extent. Do students like their college experience? Do they do well after college graduation? Do they end up mired in student debt? Do they graduate in the advertised four years? Are they successful academically –for example, winning nationally competitive awards? The answers to questions like these form the basis of evaluating colleges and universities.

Colleges often bitterly criticize the rankings. What is ironic is that colleges are themselves in the rankings business in a big way. College professors like me “rank” their students all the time by giving grades. If colleges can rank their students, why cannot disinterested other folks rank the schools themselves? The federal government announced with great fanfare a couple years ago it was going to rank schools but abandoned the plan recently, no doubt because of political pressures. FORBES and other ranking organizations ignore these pressures –and give consumers something of great value.

Rankings are useful, but the optimal school for a student varies with individual tastes, locational preference, income, major field of study, academic ability, price of attendance, and family income, to mention just a few things. Rankings give a good impression of the overall quality of the school, but their appropriateness to individuals also strongly depend on these other traits.

FORBES ranks California’s Pomona College the best school in America, but a large number of persons living east of the Mississippi River might find it too far from home, preferring nearly as high ranked schools like Massachusetts’ Harvard University or Williams College, or perhaps, in the Midwest, Notre Dame, Northwestern, or Carleton College or, in the South, Davidson College or Duke University. A prospective engineering major likely would prefer highly ranked MIT, Cal Tech, or Harvey Mudd to even more highly ranked Pomona, which does not offer engineering.

Trumping almost all other concerns very often is money. One of the young persons involved in compiling these rankings was accepted this fall at two great liberal arts colleges, Swarthmore and Davidson, appropriately choosing the slightly lower ranked Davidson because it offered a significant discount from the “sticker price,” which Swarthmore did not.

Are the rankings perfect? No. All rankers would love more authoritative and comprehensive data, for example, on the post-graduate vocational success of graduates. Some of us would love to have some data from a nationwide test of critical reasoning and writing skills administered at graduation to students at all schools. There are data imperfections, and genuine differences in subjective judgments as to what is important. The bottom line, however, is that college rankings provide valuable guidance in helping students make an important and very expensive decision that usually profoundly affects their future.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

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]]>http://www.forbes.com/sites/ccap/2015/07/29/confessions-of-a-college-rankings-guru/feed/2‘Forgive Us Our Debts’ — Revisitedhttp://www.forbes.com/sites/ccap/2015/07/22/forgive-us-our-debts-revisited/
http://www.forbes.com/sites/ccap/2015/07/22/forgive-us-our-debts-revisited/#commentsWed, 22 Jul 2015 18:01:00 +0000http://blogs.forbes.com/ccap/?p=2058The words of Matthew 6:12 (King James Version of the Bible) often come to mind when thinking of colleges. President Obama and other Progressives think of it literally when promoting federal student loan forgiveness. I think of it more generally when I consider the finances of providers of higher education services. Two recent press releases enhance our understanding of the issue, suggesting that, while relatively stable at the moment, many schools have less than rock solid finances.

First, Moody’s Investors Service, in its latest periodic assessment of college finances, upgraded its overall assessment, noting that revenues are rising modestly (in part because of somewhat higher state appropriations) and that some progress has been made in controlling expenses. Still, a sizable portion (a fifth or so) of schools have really weak finances, and Moody’s does not rate many smaller institutions whose condition likely on average is weak.

Second, Scott Jaschik and Doug Lederman, editors of Inside Higher Ed, have released their annual survey of college and university business officers. Of the three main administrators at most colleges – the president, the provost, and the chief financial officer, I consistently find the CFOs tend to be the most realistic, most in tune with what is going on in the real world (the presidents sometimes have that attribute, but only sometimes; provosts on average are more clueless, enmeshed in the details of everyday campus operations).

A scale from 1 (strongly agree) to 5 (strongly disagree) is used in answering questions. I consider a 1 or 2 answer to be in general agreement, and 4 or 5 denoting general disagreement. More than one-fourth of over 400 respondents (in other words, over 100 CFOs) disagreed that “I am confident about the sustainability of my institution’s financial model over the next 10 years.” One-third believe faculty members are not aware and understanding of institutional financial challenges.

One highly disconcerting thing relates to information. Even so-called “private not-for profit” schools serve a public purpose and are highly dependent (with a couple of small exceptions) on federal student financial aid, and/or research grants, et cetera. Yet more than one-fourth of the public schools and nearly two-thirds of the private schools admitted that they do not provide extensive information to the public about the institution’s financial health. This, to me, suggests a lot of schools are concealing financial weaknesses from the public – Sweetbriar revisited.

The CFOs overwhelmingly believe their institutions are much more abundantly aware than five years ago about the Law of Demand – higher prices reduce the proportion of students who wish to attend a given college. That realization, I think, has led to some modest reduction in the growth in sticker prices.

While colleges are willing to move to shore their finances by doing some things (e.g., seeking more affluent students), on the whole there is resistance to cutting administrative bloat (43% disagree that the university is doing more to reduce these positions than five years ago). Similarly, things like revising tenure policies, cutting spending for intercollegiate athletics or promoting early retirement or higher teaching loads for faculty are usually not on the table. In short, it is difficult to change the ways colleges do things in order to make them more affordable.

All of this reinforces my prediction that at least 500 institutions will go out of business or dramatically change (e.g., merge with other schools) over the next decade. Enrollment declines at a number of relatively undistinguished state institutions have been huge and surely not sustainable. In particular, a number of historically black colleges and universities seem to be under severe financial strain. Similarly, the number of liberal arts colleges without a great national reputation in distress seems relatively high.

I have said it before, but it bears repeating: while sometimes it is sad to see an old institution which has served its community well close its doors, on the whole the process is a good thing. I opened a 1994 copy of Fortune listing its 500 largest industrial corporations. In the top 20 are several companies that have gone through bankruptcy or merger into other firms – General Motors, Exxon, Mobil, Philip Morris, Chrysler, Texaco, Amoco and Eastman Kodak to name some. Barely half of the largest companies have not had radical surgery in the last two decade. Ford Motor, for example, survived by the skin of its teeth after radical downsizing and product innovation (remember the Mercury?). Yet American business is not dying. It is growing (albeit slowly) despite repressive governmental taxation and regulation. Creative destruction has worked – providing us new innovative businesses – the Googles and Ubers. Darwinian survival of the fittest at its best.

Massive subsidies have shielded higher education from most of this, except in the for-profit sector. Even these subsidies, however, cannot completely insulate a sector characterized by massive overinvestment and mal-investment. For that reason, the number of collegiate institutional funerals will grow in the coming years.

Richard Vedder heads the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

]]>http://www.forbes.com/sites/ccap/2015/07/22/forgive-us-our-debts-revisited/feed/0The Bennett Hypothesis Confirmed — Againhttp://www.forbes.com/sites/ccap/2015/07/21/the-bennett-hypothesis-confirmed-again/
http://www.forbes.com/sites/ccap/2015/07/21/the-bennett-hypothesis-confirmed-again/#commentsTue, 21 Jul 2015 18:03:00 +0000http://blogs.forbes.com/ccap/?p=2052It was nice to return from a week of teaching in Europe to read in the Wall Street Journal that something I had written nearly a decade ago was “prescient.” Specifically, I claimed then that for every one dollar of federal student aid disbursed, universities raise their tuition fees by 35 cents, capturing a goodly portion of the assistance designed to help students – confirming what Education Secretary Bill Bennett said more than a generation ago.

Now a new staff report by David Lucca, Taylor Nadauld, and Karen Shen of the New York Federal Reserve Bank goes even further, suggesting the average tuition increase associated with expansion of student loans is much larger – in some cases 65 cents per dollar, and that the impact is considerable (55 cents per dollar) with Pell Grants as well. The major beneficiaries of these federal so-called “student” financial assistance programs are the universities, not students. Following the money, we see a huge portion of the increment financial largess has gone to fund increased non-teaching staff, super salaries for a small but meaningful portion of the senior faculty and administration, et cetera.

Moreover, the Fed report shows that the schools benefiting the most from the tuition hikes associated with federal aid are the elite, selective private institutions. The results confirm what I have been saying with increasing frequency: federal financial aid programs are leading to greater educational inequality in America, where the cognitively blessed and economically advantaged have ever growing superiority of educational opportunity, able to attend the “great” private schools as opposed to merely adequate public institutions. Few of the top 50 on the US News or Forbes rankings these days are public universities.

A year or so ago, I asked the question, “What would tuition be at American universities today if it grew at the rate after 1978 equal to the tuition growth prior to that date? Before 1978, federal aid programs were largely non-existent or quantitatively much smaller than today. Tuition fees today would be over 40 percent lower if pre 1978 fee growth had been maintained. Typical state schools would have in-state sticker prices of $5,000 or so, with the more prestigious ones perhaps charging $7,000. The top private schools would charge perhaps $25,000, with a typical private tuition fee being closer to $15,000. The ratio of tuition fees to family income has risen significantly in the last 35-40 years, but would not have in this counterfactual world I am describing – one without a big increase in student loan and grant programs by the federal government.

All of this came home to me last week teaching in the Czech Republic. I was at the CEVRO Institut of Prague, a very fine small accredited school offering graduate instruction in law, economics, and politics. Also teaching with me was a professor at the similarly small Anglo American University of Prague. Both schools were totally private, not receiving any government aid. What were the tuition fees? At CEVRO, a bit over $3,000 a year. At Anglo-American, about $5,000. Students are eligible for government provided vouchers allowing them to rent housing cheaply – but no loan or grant programs.

As I jokingly said of the rector at CEVRO, Josef Sima, he is not only the chief executive officer, but also the provost, the chief financial officer, and dean of students. These schools are no nonsense educational institutions, offering high quality instruction in clean, nice classrooms in central locations – but without football teams, diversity coordinators, affirmative action police, trigger warnings, faculty teaching courses mainly in their obscure academic specialization while writing even more obscure papers, et cetera. Faculty are paid to teach – period, although most have Ph.D degrees from good institutions.

How to extricate ourselves from the mess an earlier generation of well-intended but hopelessly wrong politicians created? With difficulty. The solution of President Obama, Elizabeth Warren and other progressives is: more of the same – bigger Pell Grants, more loan forgiveness, lower interest rates on loans, et cetera. In other words, an open invitation for colleges to expand their rent-seeking through accelerating the academic arms race.

My solution: begin to significantly downsize these programs. End the PLUS program (loans to parents of students) and tuition tax credits. Put sharp time and financial eligibility limits on Pell Grants. Curtail seemingly endless provision of aid for graduate and professional education. Provide a legal environment that could lead to private Income Share Agreements – students selling equity, rather than bonds (the equivalent of student loans) in themselves. Make colleges have skin in the game – make them share the pain from massive loan delinquencies, et cetera. Put on minimal performance standards for aid eligibility.

The Fed study suggests the federal programs have had some positive enrollment effects, but not as dramatic as the price effects (the law of demand at work – as tuition fees rise, some students are turned off by college). Drastically reducing them would thus depress enrollments slightly, leading to more creative destruction in American higher education – underperforming institutions disappearing. It would help somewhat reduce the mismatch between jobs available and the skills of college graduates. In short, it would be a win-win for the American people.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

]]>http://www.forbes.com/sites/ccap/2015/07/21/the-bennett-hypothesis-confirmed-again/feed/0Over Half of Pell Grant Recipients Don’t Graduate in Six Years — We Thinkhttp://www.forbes.com/sites/ccap/2015/07/14/over-half-of-pell-grant-recipients-dont-graduate-in-six-years-we-think/
http://www.forbes.com/sites/ccap/2015/07/14/over-half-of-pell-grant-recipients-dont-graduate-in-six-years-we-think/#commentsTue, 14 Jul 2015 13:01:00 +0000http://blogs.forbes.com/ccap/?p=2046Say you have two different groups of individuals. Group A, which contains 30% of the people, has only a 29% success rate. Group B, which contains 70% of the people, has a 59% success rate. Now, say you have $250 billion to give to only one group that will be paid out over the next 10 years. Which group is better suited to use the money? If you are the federal government, you choose Group A, the smaller, less successful group. The federal government chooses to give out billions of dollars in Pell Grants to students each year, who offer little promise of a return on their investment.

United States Secretary of Education Arne Duncan has claimed that, “the Pell Grants program and other federal financial aid programs are an economic lifeline at colleges and universities.”Apparently agreeing with Duncan’s claim, the government has spent $250 billion on Pell Grants since 2005. However, they refuse to publish the graduation rate among Pell Grant recipients. In other words, they will not say how successful, or more likely unsuccessful, the program actually is.

Using a statistical model (multiple regression analyses), we have tried to predict the graduation rate of Pell Grant recipients ourselves. What we found is a 29.68% four-year graduation rate and a 47.32% six-year graduation rate for Pell Grant recipients. Both are below the four and six-year national graduation rates, which are 50.10% and 65.90% respectively for the 650 colleges examined in our model. Using these numbers, the graduation rate for non-Pell Grant recipients would be 59.23% and 74.23% for the four and six year rates, respectively, significantly higher than the Pell Grant graduation rates.

Recently, however, the government has started to scale back the Pell Grant program. While Obama wants to raise the maximum Pell Grant a student can receive, the House Budget Committee plans to freeze the maximum Pell Grant for the next 10 years. Congress appears posed to cut $300 million from the Pell Grant program. Scaling back the Pell Grant program, we believe, is actually beneficial to today’s college students. As the graph above shows, increases in spending on Pell Grants coincides with increases in rising tuition costs.

In 1995, there were 3.6 million students receiving Pell Grants. In 2012, 9.0 million students received Pell Grants, nearly tripling the 1995 number. Spending on Pell Grants increased at an even greater rate, by a factor of seven. In theory, this would mean that more students from low-income families were given the opportunity to attend college. However, this does not appear to be entirely true. While the program was originally intended for low-income families, in 2012, nearly 30% of Pell Grant recipients lived above the poverty line. Clearly, the program has not only lost its effectiveness, but its focus as well.

Why does the government continue to pump money into a relatively unsuccessful program? While Pell Grants, in theory, have good intentions, they directly correlate to lower graduation rates among colleges today. While there is something to be said about giving students from lower income families the opportunity to go to college, the end goal is still to graduate. The government is refusing to tell us the success rate of a program that has cost them $250 billion in the past ten years. The largely unsuccessful Pell Grant program has likely been an important factor in the rising costs of higher education. This flawed program is in need of a massive overhaul.

Max Pristic and Sam Kissinger are associates of the Center for College Affordability and Productivity and are undergraduate students at Ohio University.

]]>http://www.forbes.com/sites/ccap/2015/07/14/over-half-of-pell-grant-recipients-dont-graduate-in-six-years-we-think/feed/2Academic Prostitution, California Stylehttp://www.forbes.com/sites/ccap/2015/07/06/academic-prostitution-california-style/
http://www.forbes.com/sites/ccap/2015/07/06/academic-prostitution-california-style/#commentsMon, 06 Jul 2015 18:01:00 +0000http://blogs.forbes.com/ccap/?p=2039California is a big state, but it is rare when four of the dozen or so major stories on the Inside Higher Ed web site are about higher education in a single state. Although the four stories were seemingly highly disparate, they all had a common theme: higher education is often largely about the pursuit of income – what the economists call “economic rent.”

University of California at San Diego v. University of Southern California

The first rather juicy item was that the University of California at San Diego (UCSD) is suing the University of Southern California (USC) – what I once in another context called “war between the rent-seekers.” UCSD had a team of researchers with large federal grants that was successfully wooed to move to USC. UCSD pointed out that the grants were made to it, the institution, not to its researchers, so it hired new researchers to perform the research – but it was allegedly impeded by the failure of the original (now USC) researchers to provide data, presumably federally funded, vital to project completion. Research overhead funds, the protestations of universities to the contrary, are highly lucrative, so I suspect that is why UCSD is willing to do the uncongenial thing of suing a neighboring university.

Taking California Out of the University of California

Speaking of the University of California, another Inside Higher Ed story noted that in-state admittances for this fall were down by over 1,000 students from the previous year – while out of state American admits and foreign admits were up by over 3,000 – extraordinary increases of nearly 13 percent for both groups. Since out of state tuition is dramatically higher than in-state charges, the university derives more income by denying residents of the Golden State admission. As non-Californian admits rise above 30 percent of the total, at some point California taxpayers may ask: why are we funding this institution? Many other schools have even higher percentages (e.g., the University of Colorado, the University of Michigan), but at some point legislators get anxious and angry.

Alleged Ethnicity Fraud at the University of California Riverside

A brouhaha has erupted over a professor at UC Riverside, Andrea Smith. On the heels of the Rachael Dolezal incident (involving a white woman asserting an African-American identity), Prof. Smith has been frequently cited as a prominent Cherokee scholar, but apparently she is not Cherokee. Apparently for some the relevance of her writings and teachings depend not on their accuracy, their sagacity, or even their emotional appeal, but rather on the ethnic/racial background of her parents. These incidents demonstrate clearly that race matters in America –there is money to be made by claiming status in a favored minority as opposed to being classified as merely white. My dictionary says racism is “Prejudice or discrimination based on race.” By that definition, American universities are institutional racists. The solution? Start by banning even the collection, much less publication of data on the racial classification of students, employees, and contractors. As long as race-hustling politicians and rent-seeking students and faculty still have clout, however, there is no chance of that happening.

Cal State Makes Love Not War to Enhance Revenues

Inside Higher Ed draws upon a Los Angeles Times story that says the California State University system won $97 million in appropriation increases from the California legislature. While the UC system threatened to enact tuition increases if their appropriation needs were not met, the Cal State system did more low key lobbying of members, even handing out socks (“I stand with CSU”) to legislators. Be friendly and non-confrontational instead of threating the lawmakers. It seemed to work. Rent-seeking takes many forms.

Over the years, the one thing I have found that trumps everything in importance –enrollment optimization, university prestige, magazine rankings – is revenue maximization. It is all (or mostly) about money. Universities will trade their principles for cash. For example, even the rich Ivy League schools have adopted near-police state student judiciary policies relating to sexual assault for fear of offending the Department of Education and thereby lose federal subsidies. Universities are intellectual prostitutes – the only issue is: what is their price?

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

]]>http://www.forbes.com/sites/ccap/2015/07/06/academic-prostitution-california-style/feed/1Higher Education Week in Review: June 22-July 1http://www.forbes.com/sites/ccap/2015/07/02/higher-education-week-in-review-june-22-july-1/
http://www.forbes.com/sites/ccap/2015/07/02/higher-education-week-in-review-june-22-july-1/#commentsThu, 02 Jul 2015 13:13:00 +0000http://blogs.forbes.com/ccap/?p=2036Or in this case, a week-and-a-half in review. This feature will be on hiatus until late July.

The U.S. Department of Education dropped its plans to rate American colleges. Coverage in Inside Higher Education and the Chronicle. Reax here. Goldie Blumentstyk ponders the Department’s move behind the Chronicle’s paywall.

The Department’s “gainful employment” rule was given the green light by the U.S. District Court in Washington. The brunt of the rule falls on for-profit colleges, who must gather extensive data on graduates’ earnings and meet statistical tests concerning graduates’ ability to repay their federal loans. Full text of the court’s opinion is available in PDF here. The rule, which is something like 950 pages long including a 610-page preamble, goes into effect today. The response of the Association of Public Sector Colleges and Universities to the decision is here.

Is college a good investment? George Leef reviews “Will College Pay Off?” by Wharton management professor Peter Cappelli. Be careful with whom you discuss this question, however.

]]>http://www.forbes.com/sites/ccap/2015/07/02/higher-education-week-in-review-june-22-july-1/feed/0The Obama Administration is out for the Blood of For-Profit Schoolshttp://www.forbes.com/sites/ccap/2015/06/30/the-obama-administration-is-out-for-the-blood-of-for-profit-schools/
http://www.forbes.com/sites/ccap/2015/06/30/the-obama-administration-is-out-for-the-blood-of-for-profit-schools/#commentsTue, 30 Jun 2015 15:31:00 +0000http://blogs.forbes.com/ccap/?p=2032My associate director and highly competent sidekick Mike DeBow, a law professor at Samford University, made a good presentation on the state of the for-profit higher education industry at a superb conference last week at the George Mason Law School. Mike emphasize that the for- profit schools were treated quite differently than so-called “not-for-profit” institutions with respect to such things as “gainful employment” rules. The courts have given the Obama Administration an okay to proceed to punish for-profit institutions (and their students) that do not meet gainful employment rules, namely that student loan repayments not exceed eight percent of their total income or 20 percent of their “disposable income” ( income remaining after covering basic subsistence costs). The rules are exceedingly discriminatory, not applying to not-for-profit institutions. I can think of many public universities with low graduation rates and/or high default rates that most likely would fail a uniformly applied “gainful employment” rule. Schools that come to mind include: the University of District Columbia, Wayne State University, Central State University, several University of Texas schools, and the Chicago State University. Why are they treated differentially than the for-profits?

But why is the Obama Administration so intent on going to war with the for-profits, dramatically reducing their market share from its 2010 peak of about 10 percent of total enrollments? Is it just an ideological animus towards free enterprise and competitive market capitalism? Is it a view that it is simply wrong to profit from someone learning?

GMU law professor Todd Zywicki, who ran the conference that Mike and I attended, offered another possible explanation, one that strikes me as be highly credible. Universities are among the most reliable supporters of the Democratic Party, both financially (not as institutions but through faculty and staff donations) and through their intellectual contributions. Well over 90 percent of political contributions of faculty at major universities in 2012 went to President Obama. His administration is dominated by persons with considerable training and often employment at elite institutions, starting with himself, an ex-professor at the University of Chicago.

The existence of a robust for-profit industry potentially threatens the hegemony of traditional not-for-profit institutions. As the for-profits grew in the first decade of this century, they started more directly competing with conventional universities. Their leadership and adeptness in on-line instruction started to hurt some conventional universities. Thus the higher education establishment increasingly wanted to muzzle and constrain the new competition who were less reliable as allies of the Obama Administration. The power of the government is being used to protect Obama’s financial supporters who also provide valuable intellectual ammunition in countless policy battles.

This is similar to the Obama strategy elsewhere. The National Labor Relations Board, for example, has developed a radically pro-labor stance, and has adopted provisions designed to please the labor unions who are another large source of financial support.

A showdown is approaching. Both the House and Senate appropriating committees are proposing budgets that ban the implementation of the gainful employment regulations, along with some other anti-proprietary education provisions (e.g., requiring state authorization to operate on-line programs in each state). The Obama Administration seems determined to continue its war on the proprietary schools. Leaders of for-profit institutions are counting the days until the Obama nightmare is over, and hoping to delay and obstruct changes until after January 2017, when they hope reason and fairness will prevail.

Liberals who truly want to expand the educational franchise should favor the for-profits. For years they have been the leaders in reaching out to non-traditional students, individuals whose academic promise and resources are very limited. But they are apparently not reliable contributors to political campaigns, so perhaps that is why they are shabbily treated.

Conservatives are mixed in their support of for-profits. They appreciate that they have to respond to market pressures, all the while paying taxes. At the same time, they derive almost all of their revenues from the dysfunctional federal government student loan and grant programs. The less scrupulous of them have milked those programs without providing great opportunities for students. Thus, the sector, while in many ways more efficient and market-friendly than the not-for-profits, is still somewhat suspect. But most conservatives believe at the minimum there should be a level playing field between all players in the field.

It will be interesting to see what the presidential candidates say about this sector and, indeed, about higher education reform in general. Interest in the topic is rising, and the candidates need to focus attention on the topic. There are several good policy ideas that should be adopted (a list of 36 is included in this comprehensive analysis I have done of the subject) –let’s see whether the candidates rise to the occasion.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.